Helsinki-based local authority pensions giant Keva reported a 2.3% loss on investments in the first quarter of this year, with its leaders warning of difficult times ahead despite the relatively muted market reaction to major negative factors at play.

Keva posted a return of -2.3% for January to March, and a fall in total assets to €65.2bn at the end of March from €66.8bn at the end of December, saying the uncertainty in the investment market had been reflected in its unaudited interim results.

Jaakko Kiander, chief executive officer of pension fund – which is Finland’s largest – said: “So far, the market reactions caused by the war in Ukraine have been moderate, but we are moving towards difficult times.”

Rising inflation would weigh on investment returns for the current year, at least, he said.

“Much depends on how Europe’s energy situation develops and how central banks react,” Kiander said.

Ari Huotari, Keva’s chief investment officer, said the stock market had been surprisingly calm in its reactions throughout the first part of the year, given that a major war had started in Europe.

“Especially when the market was worried about the rapid rise in inflation and concerns about rising interest rates even before the war,” he added.

Fixed income investments and listed equities in Keva’s portfolio ended the quarter with negative returns of 3.3% and 4.9%, respectively, according to the interim figures published, while private equity produced a positive 3.5% return.

Hedge funds, meanwhile, produced a 2.0% gain and real estate investments, including real estate funds, registered a 0.8% return, Keva reported.

Last year, the pension fund made a 15.8% full-year return on its investment portfolio, with private equity alone having supplied a 51.4% gain.

Among other large pension funds in Finland, the four pension insurance companies in the earnings-related pension system also made investment losses in the first quarter of this year, ranging from -3.5% to -1.9%.

Read the digital edition of IPE’s latest magazine